Here's six-point defense of farm subsidy program

Jim Langcuster Alabama Cooperative Extension System | Nov 03, 2004

Why are U.S. farmers, even the most highly efficient ones, still so dependent on farm subsidies? Dan Morgan, a Washington Post staff writer, explored this paradox recently in an article featuring North Dakota farmer Allan Skogan, one of a new breed of highly adaptive, technologically savvy producers who nonetheless believes farm subsidies have been a critical factor behind his success.

The reasons farm payments survive despite loud, often withering criticism from policymakers and public advocacy groups are complex, says Robert Goodman, an Alabama Cooperative Extension System and Auburn University associate professor of agricultural economics. Nevertheless, he is one of an embattled minority of farm economists throughout the nation who agree with Skogan and other producers that subsidies are critical to the future of farming.

Goodman cites six reasons in support of farm subsidies.

Stability

Unpredictability, either in the form of natural or man-made disasters, remains the biggest challenge associated with farming both from the standpoint of the producer and the consumer.

Throughout history, crop failures were facts of life driven home with horrifying frequency until the 20th century when farm price supports became common.

“During famine, food became scarce and prices spiked,” Goodman says. “Now, thanks to subsidies, we are — to some degree, at least, — better protected by these higher food reserves.”

Critics argue that subsidies create an excessive and even burdensome over-supply of inventory. To a great extent, that's true, Goodman says. On the other hand, he argues, the huge year-to-year carryover of large inventories safeguards against huge prices fluctuations that otherwise would follow natural or market-driven setbacks.

From the beginning of civilization, self-sufficiency always has been associated with security. While Americans increasingly look to other countries to supply many of their basic foods, farm payments nonetheless serve a useful purpose in preserving a farming infrastructure that could quickly adapt to raising other commodities in the event of a national emergency, Goodman says.

“If only on the basis of national security, farming is a sector of the economy that should be maintained,” he stresses.

Even larger questions beyond national security are involved. Goodman says Americans need only look to their neighbors to the north, the Canadians, to observe how a “country concerned about how a collapse of their farm economy might affect their national identity and sovereignty.”

The Pass-Through Effect

One of the major misconceptions associated with farm subsidies, particularly among consumers, is that producers are the only ones who benefit — not true, says Goodman.

Subsidies virtually guarantee that products such as corn, cotton and wheat are produced in large amounts — a factor that not only benefits producers but others along the food-processing and marketing chain.

“It's not just the final products we eat that are affected by these payments but the building blocks along the way that comprise the food production and distribution chain,” Goodman says. “Farmers receive direct benefits, but others along the way benefit indirectly through cheaper production inputs, which, in turn, contribute to lower production costs.”

Unintended Consequences of a Subsidy Phase-Out

While phasing out subsidies is conceivable, Goodman says it raises another important question - is it feasible?

“Critics of farm programs say we would be so much better off if we could get from here to a point where farmers could function without subsidies,” Goodman says. “But what happens along the way?

“Even if the mountain on the other side may be a little higher, we're first going to have to pass through the deep dark valley below,” he argues. “For that matter, what would happen once we reach the other mountain and discover the sides are too steep to climb?”

In the end, Goodman fears, the journey to the other side of the valley could turn out to be more trouble than it's worth.

Reflecting on Past Successes

Moreover, in assessing the risks, Goodman says it's important to remember the positive effects associated with subsidies within the past century.

“In spite of everything critics say, when we reflect on the almost 100-year history of subsidies and consider the role they've served, we have to say, ‘Gee whiz, they worked; they've been successful.’”

Subsidies, Goodman contends, have accomplished what they had intended to do - supporting farm income and securing a safe, reliable food supply.

The Relatively Cheap Cost of U.S. Farm Payments

In assessing the costs and benefits of U.S. farm payments, one other factor that needs to be considered is their relatively cheap costs compared with other industrial nations, Goodman says.

In terms of the percentage of farm revenue paid out in subsidies, the United States spends considerably less compared with other Western nations, he says.

In Switzerland and Norway, for example, more than 70 percent of farm revenue is derived from government payments, compared with only 20 percent in the United States.

In dollar terms, the European Union spends more than $100 billion on farm support payments, while the United States spends only $44 billion, despite that the U.S. farm economy is considerably larger, Goodman says.

Subsidies are one of several global issues that have generated heated discussion in recent years — little wonder why, Goodman says.

“The same challenges associated with other public policies hold true for subsidies,” Goodman says. “They cause some bad things to happen along with the good, but on balance, the good things far outnumber the bad.”